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The town is situated within the historic Neumark (Nowa Marchia) region at the confluence of the Oder and Warta rivers, on the western rim of the extended Warta mires. The town centre is located about 90 kilometres (56 mi) south of Szczecin.

Until the end of World War II and the implementation of the Oder–Neisse line in 1945, the municipal area also comprised the Küstrin-Kietz suburb on the west bank of the Oder river, which today is part of the German Küstriner Vorland municipality. The former town centre, the Küstrin fortress located on the headland between the Oder and Warta rivers, was destroyed in the war and not rebuilt. Today Kostrzyn's central area is located around Kostrzyn railway station east of the Warta mouth.

From 1535-1571 the town was the seat of John of Brandenburg-Küstrin, who made it the capital of the Neumark region and built a castle. With time this castle was expanded into a fortress, one of the largest such facilities in the region. While still crown prince, Frederick the Great was imprisoned in the fortress, from which he is said to have witnessed the execution of his friend Hans Hermann von Katte on 6 November 1730. The town was besieged by the Russians during the Seven Years' War. Captured by the French in 1806, Küstrin was occupied by a French military garrison for the remainder of the Napoleonic Wars. During the French retreat from the east in 1814, the town was set on fire and burnt to the ground. The town recovered and became one of the most important railway hubs in the Kingdom of Prussia and later the German Empire. In 1857 it was linked to Berlin and Frankfurt (Oder) and in 1875 with Stettin (Szczecin) on the Pomeranian coast. In 1900 its population reached 16,473, including the garrison of the fortress.

After the war the ruined town was placed under Polish administration by decision of the Potsdam Conference; Germans remaining in the town were subsequently expelled westward. New Polish settlers took the place of the former German inhabitants. Some of the new inhabitants were Polish refugees from regions east of the Curzon line, the Kresy, from where they had been displaced by Soviet authorities in accordance to new borders decided at Yalta Conference, while most new settlers were re-settlers from Central Poland.

The remnants of the old town within the fortress walls, including the castle in which the young Frederick the Great had been imprisoned, were razed after the war and the bricks used to rebuild Polish cities elsewhere. More recently, plans to rebuild some of the old town in a historical style was considered, but this project appears to be on hold. The section of the town on the west bank of the Oder remained in Germany and is now called Küstrin-Kietz.

German sealing stamp of the town

Since 2004 Kostrzyn has annually hosted Przystanek Woodstock in the summer, the largest open-air music festival in Europe and one of the largest in the world.